When you file bankruptcy, does it matter if you have a lease or a loan?

Leases and loans are treated differently in a bankruptcy case, so it’s important to know what type of contract you have. Make sure to keep and provide to your bankruptcy attorney, the lease agreement or the loan statement.

So what are the differences? If you are leasing something, let’s say a car, you don’t own it. This may be good because the value of that object would not increase the pay-out to creditors. On the down side, you can’t change the terms of the lease through your bankruptcy case, although you do have the option to reject it and walk away from it altogether.

If you have a loan, and not a lease, it’s often possible to change the terms of the loan to your advantage if you file a Chapter 13 case – usually, by lowering the interest rate and stretching out the term, and sometimes by cramming down the principal balance owed.